People possess different talents and abilities. The economic system that best manages to induce people to maximize their talents and abilities is preferred. Capitalism does this more than socialism. Capitalism, since it encourages freedom, encourages people to compete for resources. This competition for resources is inevitable since many of the resources people value are scarce. So every economic system must deal with scarcity. Even our pre historic ancestors had to compete for resources. The key difference between cave men and women clubbing each other to death and capitalism, an organized economic system, is the lack of violence. Capitalism retains the motivator, the competition for scarce resources, while simultaneously removing the violence. It compels action without encouraging violence.

It is vital that a government exists to provide the prerequisites that are required for capitalism to flourish. Banks, currency, courts, and police are required to establish anything more than a primitive economic system. Socialism, as opposed to capitalism, is an economic system that relies on more, not less, government intervention in the economy. While both economic systems, at least theoretically, remove violence from the equation, socialism tries to limit private property in certain areas of the economy. These market interventions directly contradict a capitalistic economy, which encourages the free exchange of private property.

Isn’t “Capitalism does this more than socialism” just an assertion that alone cannot be judged? The reasoning is the area that can be attacked. I can either reasonably support this idea or not. I am guessing you are just stating that the reasoning I likely use to support this idea will be flawed, contradictory.

Stepping back for a moment, I wonder if it might be more productive to debate a specific area within the economy and whether or not that area ought to be organized under capitalism or socialism. For example, “all public schools in the United States ought to be privatized.” Debating capitalism vs. socialism seems to be so big…Are debate propositions typically this general?

Ok, this is my attempt to argue that capitalism is superior to socialism. I acknowledge that this is challenging. And I am personally fine living in a society that contains public AND private economic spheres. This is being performed as an exercise, testing my own knowledge and ability to reason. When debates like this occur on other boards, I am generally turned off by the lack of nuance. Caveats aside, here goes.

Today's post is basically an opening statement.

Economic systems are concerned with the allocation of a society’s resources. The most basic economy, and likely the condition of man for thousands of years, involved a condition where property rights were based on each person’s ability to amass resources and to keep them, using whatever means possible, violent and non-violent, cooperative and uncooperative. Might, more often than not, determined property rights. Without an organized political system, laws did not exist. Each man behaved according to his own needs and desires. Life during this time is best described as chaotic and violent.

Like the economic order, the political order, if we can call it that, was arbitrary and violent.

Modern political and economic systems can be evaluated to the extent that they lead man back to this violent and capricious environment. In this analysis, capitalism will be compared to socialism. Capitalism, you will see, is more likely than socialism to keep man from his primitive and bloody past.

How humanity evolved from this insecure and often violent existence is far from linear or preordained, as our recorded history so vividly demonstrates. To achieve lasting peace and prosperity humans have had to create order out of chaos. The recipe for order, however, has had to be delicately crafted. Peace without prosperity is no better than prosperity without peace. The establishment of lasting order and prosperity can only be achieved with political and economic systems that reflect the true nature of man. And since economic systems influence political systems, the type of economy a group chooses will create certain political outcomes. The political outcomes created by capitalism are superior to those created by socialism.

What is it about human nature that must be accounted for when evaluating political and economic systems?

Economic systems are concerned with the allocation of a society’s resources.

This is the relevant part of your discussion.

Capitalist systems allocate resources based on ability to pay for them, generally regardless of intended use of the resources. For example, there is currently a shortage of doctors in the US. Why? Money is the major factor--specifically, the lack of money to be earned as a doctor. Because of a variety of factors, including a limited number of spaces for training future doctors, the supply of doctors is artificially restricted (thus eliminating the "free market" from this "capitalist system"). But also contributing to the decline is the fact many finance/investment industry jobs pay far more than what a doctor earns--and does so with far less education (and debt incurred) than a medical degree. Plus, there is no limit on the number of people who can enter the finance field.

Thus, when a smart student evaluates his/her future job possibilities, making a lot more money sooner AND with less incurred debt is a major factor in deciding to NOT become a doctor and choose instead to become a finance MBA. Those who *truly* wish to be doctors will be able to apply to medical school--but there will be fewer *smarter* people competing to become doctors because some of them will choose to go into the finance field instead.

Socialist systems allocate resources based on a societal need for a range of needs, with an individual's ability to pay being essentially irrelevant. Thus, that system will determine how many doctors will be needed and simply have that many people desiring to be doctors going through their educational system.

There will likely be MORE doctors in the socialist system than in a capitalist system because demand for medical care is ongoing--and the greatest demand is for general care, which is most easily met. The harder medical areas are specialties because there are so many different types of specialists and even sub-specialties--so this is where capitalist systems *might* be more effective overall. But, this requires meeting most of the medical requirements of the public BEFORE allocating resources to extremely narrow (sub-)specialties.

I am willing to concede that using demographic data, a government planning commission could come up with a number of general practitioners that better meets society's demands for medical care.

But, then what?

In every population of people some will want to study medicine. But will the supply of people be enough? What will be the incentive to study medicine? Is it a government funded education? Is it a high salary? If so, from where will the money come to fund these endeavors? If the perks of becoming a doctor are enticing enough, you will surely generate a large supply of people willing to study medicine. This is true in both a capitalist system and a socialist system.

A capitalist would caution socialists about relying on government planning commissions.

Are the benefits of meeting societies needs corrected at the cost of creating new problems, new shortages? Are govt planning commissions always going to be able to discern what society needs? Who comprises these commissions? What checks and balances are going to be in place to prevent destructive decisions from being made?

A general practitioner shortage could also be achieved if the force of government is used to coerce people into medicine, literally mandating that some people study medicine. I suspect you would not choose this option. Am I correct? Socialism, much more than capitalism, seems capable of relying on force to achieve desirable policies.

"There will likely be MORE doctors in the socialist system than in a capitalist system because demand for medical care is ongoing--and the greatest demand is for general care, which is most easily met.”

Also, in a socialist system how far does trust in government planning go? What areas of the economy are subject to government planning?

As you point out, capitalism does rely on the ability to pay as a way of determining the allocation of resources. Capitalists will argue that since most of what people want is scarce, choices have to be made. Trade offs need to made. Who gets to make the choices, the individual or those in power?

If there is a shortage of general practitioners, a capitalist must consider if it reasonable to force doctors who might be choosing to specialize in areas of medicine that are deemed (by govt) unnecessary or superficial to NOT practice in these “wasteful” areas and to work as general practitioners.

How, then, does capitalism respond to shortages in areas that are necessary, important?

If the cost/benefit analysis does not justify the career choice of medicine, and if on principle a capitalist system refuses to use coercion to get people into a profession, then some decisions would have to be made that impact the supply and/or demand for medical care, including (these options are not equally attractive to a capitalist)

Are the restrictions currently placed on who can become a doctor reasonable? Shouldn’t the only restriction be competency? Might nurses be used to meet the needs of patients, without compromising quality of care? Does our system make the cost of becoming a doctor too high? Might government need to step in and use tuition discounts to entice more people to choose medicine? Might disincentives be needed to guide people away from choosing medical procedures that are deemed (by whom?) unnecessary or wasteful.

I think an important point to make about capitalism, at least as I am arguing for it, is that market failure happens. When it does happen, a supporter of capitalism FIRST needs to analyze the status quo to see if current policies might be getting in the way of creating an equilibrium of supply and demand.

For example, an analysis of why the financial sector is able to offer such high salaries to our most capable students might be performed? A capitalist would start this analysis assuming that the financial sector must be creating value, satisfying consumer needs. (I understand that a critic might immediately be tempted to attack the idea that the financial sector contains people who are adding value to the system. And, as our system currently exists, it is reasonable to say that this is not true. A capitalist would argue that our system contains many market distortions that have created perverse incentives, which have tended to reward risky behavior. These problems are not due to capitalism. They are corruptions of the political system.

A similar argument could be made about the high costs of college.

Then, if these obstacles are removed, and shortages still occur, necessary market interventions may need to be considered.

I really wish we could edit after posting. I would also like to clairfy my word choice here: "I am willing to concede that using demographic data, a government planning commission could come up with a number of general practitioners that better meets society's demands for medical care."

"I am willing to concede that using demographic data, a government planning commission could quantify how many general practitioners would be likely to meet society's future demands for medical care. But I am not so sure this appoximation would be accurate. There are too many unknowns. For now, though, let's assume the centrally planned #s better reflect the future demands for medical care within a society. Now what? How does that # on a piece of paper get turned into doctors?" (edit complete)

In every population of people some will want to study medicine. But will the supply of people be enough?

Generally, yes. There are almost ALWAYS more qualified applicants than available slots to train them all. It is ALWAYS better to start with more than you need--because some WILL drop out (for one reason or another). Once graduated, they will move into various areas of medicine. Given a large number of grads, they will fill most needs of the general public (statistical distribtution of interests).

If there is a shortage of general practitioners, a capitalist must consider if it reasonable to force doctors who might be choosing to specialize in areas of medicine that are deemed (by govt) unnecessary or superficial to NOT practice in these “wasteful” areas and to work as general practitioners.

They are highly-paid doctors. They *already* HAVE the resources to "waste" maintaining (or even expanding) their practices. "Waste" is a matter of opinion--and definition. Advertising cerates desire--not actual need (perception is everything). Look at the vanity medical profession as the perfect example. The doctors in a capitalist system don't care about anything except *personal* enrichment--because that is the definition of how the capitalist system works. To them (capitalists), everything else is incidental to making a profit.

For example, an analysis of why the financial sector is able to offer such high salaries to our most capable students might be performed? A capitalist would start this analysis assuming that the financial sector must be creating value, satisfying consumer needs.

Such an analysis would be fundamentally flawed. Why? For every buyer, there is (on the other side of the deal) a seller. One loses and one gains on the deal. It is a zero-sum game because it is not known which is the winner and which the loser. However, it is not treated as such because the ONLY analysis done is buy and sell prices by ONE person--which is done for income tax purposes. Look at those investing today. They are "losing" money on their new fixed investments because the interest rates available are less than inflation. When interest rates go up, the price of their investments will fall dramatically. Holding a short maturity and then constantly reinvesting the capital sum is the only choice to be able to break out of such a predicament. They are not able to make a long-term investment unless they are willing to accept the fact they will NEVER get a decent return on their money. Which contradicts the premise of capitalism.....

“competition for resources is inevitable since many of the resources people value are scarce.”

How does socialism address this unavoidable fact of life? Government planning.

So, if government planners examine data and determine that 10,000 more general practitioners are needed in society based on changes in the population, how are these 10,000 spaces filled? Is money involved in incentivizing this choice?

So, if government planners examine data and determine that 10,000 more general practitioners are needed in society based on changes in the population, how are these 10,000 spaces filled?

GPs are one of the easist positions to fill because it is mostly OTJ training after medical school. Many such positions can be filled by a nurse practitioner, not an actual MD. Another factor is the time period. 10k more needed--but over what time period? Over 10 years, that is only 1000/year. Very easily filled with the applicants already in the queue. Do it for 12-15 years to cover dropouts (so 10k net after 2k to 5k drop out)--or if some go on to become needed specialists in new areas.

How about compensation? With socialism, is money used to encourage certain behaviors?

Pay tends to be tied to two factors:

A. A basic amount to cover expenses, plusB. A supplemental amount based on a variety of factors. Low-skill jobs get less, but also depend on the type of work. Jobs with significant physical labor might get an extra amount compared to office workers because hard labor jobs tend to wear out people physically much more quickly than non-physical jobs. Jobs with a more advanced skill set would pay more because of the time spent getting educated also means they gave up the income they could have earned in order to go to school.

The difference from top to bottom is much smaller (as a ratio) because the bottom earnings is higher and the top earnings are lower than in a capitalist society. However, prices are set based on real costs--with no profit margin. So there is no market manipulation by those who were able to corner the market on an item (commodity?) that unexpectedly became scarce.

Thanks, Jerry, for continuing to respond. I will list some questions that I still have. No need to answer them all…

And who determines the actual amounts that people get paid? Government, I assume.

Doesn’t innovation suffer under this model?

Is there a country implementing the economic principles that you describe?

Are there some texts that you would suggest to somebody looking to learn more about the inherent problems with capitalism and the benefits of socialism? And vice versa.

Working on a post that revolves around this question: As I reflect on our discussion about capitalism and socialism, what are some points that stand out? It may take me a few days to gather my thoughts.

No. Incentives to save money via innovation can be paid to whoever comes up with something "new and different" that actually works. If tied to the amount saved (say 3%-10% for 10 years, with lower % for larger absolute savings), it can have a big payoff for everyone.

Is there a country implementing the economic principles that you describe?

No. The nearest would be a few of the Middle East countries--Qatar, etc. They are really hereditary monarchies and the govt provides everything because the alternative would be they all have nothing (and the oil companies keep the money). Note many of the Middle East countries were created after WWI (breaking up the Ottoman empire), so they are not long-existing countries. Hence, the many problems in the various countries due to somewhat arbitrary boundaries created then.

Are there some texts that you would suggest to somebody looking to learn more about the inherent problems with capitalism and the benefits of socialism? And vice versa.

Not really. When a govt supposedly becomes socialist, it is really a variation on a dictatorship. Iran, Iraq, Libya, etc.